Lebanese authorities reversed their approach last week on a state consultative council announcement from June 2nd that would have frozen all deposit withdrawals from foreign currency accounts (existing clients see our piece on the Sayrafa foreign-exchange platform). After more than a day of protests, the Banque du Liban (BDL) announced on June 4th that depositors who had foreign exchange accounts with commercial banks prior to October 2019 would still be able to withdraw the equivalent of USD800 per month at an exchange rate of LBP3,900 per USD1, including USD400 in hard currency, leaving in place a system first introduced in April 2020.
Outlook
The BDL is now considering a new policy, which it indicated would go into effect on 1 July, but details of its implementation, with initial indications suggesting that banks would be required to pay depositors the USD400 equivalent in local currency at a rate approaching the black-market rate under the new Sayrafa platform rate, are yet to be finalized and banks have reportedly pushed back hard on their ability to source hard currency without drawing on required reserves held at the BDL.
The BDL’s ability to provide dollars is limited given dwindling foreign currency reserves. Until now, reserves have been used to subsidize critical imports at the official rate of LBP1,507.5, although even this is under threat now that reserves have declined to minimum required levels of around USD15 billion. Monolith believes that in May, the central bank has been unable to meet a USD1.3 billion payment for subsidized medical supplies and fuel imports needed to run domestic power plants have also been cut off because of non-payment.
In the midst of a currency crisis, maintaining a slow trickle of deposit withdrawals at various exchange rates shifts the cost of depreciation from bank shareholders to depositors.
The black-market exchange rate has already depreciated considerably in the time the limited withdrawal system has been in place from around LBP8,500 per USD1 in June 2020 to LBP13,000 per USD1 today.